Tax Hikes, Tax Cuts and the Power of Baselines

Much hand-wringing has been done in the wake of the failure of the Supercommittee about whose fault it was that the appointed Congressmen couldn't come to a deal. Both Democrats and Republicans presented plans, but in the end, both sides dug in their heels and didn't meet in the middle.

Many have concluded that it's the fault of Republicans for refusing to consider "net tax increases," despite a surprising proposal from a group led by Sen. Pat Toomey that included increased revenue, specifically from the rich, relative to a current-policy baseline. Dave Weigel wrote, for example, that the GOP "didn't accept 'net' tax increases... They accepted some tax increases while asking for the Bush tax rates to be made permanent - a net tax cut." Meanwhile, Kevin Drum writes that it's "flatly untrue" that Republicans are open to revenue increases, saying

The Toomey proposal in the supercommittee did indeed include about $300 billion in new taxes, some of which would have fallen on high-income earners. But Toomey's proposal explicitly tied this to a demand for permanent extension of the Bush tax cuts for the rich... Unlike the other Bush tax cuts, these cuts are very much a matter of contention between the parties.

Drum titles his post "No, Republicans Are Still Not Willing to Raise Taxes." By his definition, however, neither are Democrats. Let's put this in a non-partisan context. The CBO has two forecasts for revenue: the extended-baseline scenario and their alternative fiscal scenario (AFS). The extended-baseline scenario takes into account current law - which assumes expiration of all the tax cuts in question in 2013. The AFS is a baseline where the CBO takes into account political reality, and assumes full tax cut extension when the time comes.

The world in which the GOP is not open to increased revenues is the extended-baseline world. But in this world, neither are the Democrats. Both parties' official platforms are to massively cut taxes on the vast majority of Americans, but differ on how to treat high-income Americans. Even so, though, Democrats are decidedly not proposing tax increases on the rich - both Obama and the Dems on the Supercommittee's policy positions are revenue-neutral on wealthy Americans.

In a much more politically-realistic world - the world of the AFS - Democrats are angling for a tax increase of about $700 billion on upper income-earners, while the Toomey Republicans pushed a tax increase of nearly $300 billion on upper income-earners. Both parties would keep revenues on middle- and lower-income Americans relatively neutral.

The plans are not all that far apart. But the meme on the Left is that Republicans are anti-tax zealots who can't be trusted or reasoned with. But people like Drum want to use different baselines for different people. Democrats are only in favor of tax increases if the AFS baseline is used - and if that's the case, Republicans are also in favor of raising revenues. Republicans are for a massive tax cut if you're using the extended-baseline scenario - in which case, Democrats are as well. This business of saying that one of the teams is in favor of a "net tax hike" or "net tax cut" while the other is not is simply not true in either of the realistic policy worlds - the worlds presented by the CBO's baselines.